Real Estate Negotiating 101: How to Talk Your Way to a Deal Fearlessly

Back when I was in college, I had a class on negotiations, and one of the main projects was called “collecting no’s.” Basically, we had to get rejected 10 times. Each request had to be realistic, legal and to someone who didn’t know you were asking it as part of an assignment. The goal was to collect at least 10 “no’s” and write them each down and turn in that notebook.

The whole point was simply to break down the fear of rejection. Salespeople will sometimes talk as if they have to go through X number of “no’s” to get a “yes” based on what percentage of their leads they actually convert. So every “no” — while technically accomplishing nothing — psychologically feels like moving forward.

So, the idea of this assignment was, after failing to convince my roommates to move my furniture for me and the like, the fear of hearing “no” was eradicated from me.

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The Fear of Rejection

Well, not completely. Getting rejected sucks, but generally it’s the fear of that rejection that’s the worst thing. I’m not talking about being rejected by a spouse or parent or someone really close to you, but in the smaller things. And with those things, it really shouldn’t matter if you’re rejected. This is particularly true for real estate investment. It may feel personal, but it’s just about the offer.

While it may be easy to tell yourself that it doesn’t matter if some seller rejects you, it’s a lot harder to actually feel that way. I certainly have by no means mastered this, but I can say it helps to consciously remind yourself beforehand of how little it will matter in a month (or in a week, or tomorrow for that matter, or in 10 minutes) if some seller gets offended because they think your offer is too low.

Imagine detaching yourself from the situation and seeing it as a third party, neutral observer. Take the emotion out of it, as well as the potential for hurt feelings or embarrassment. If they get offended or angry or reject you, who cares?

What would that third party observer think? Well, such a person would probably be bored out of their mind. Watching two people negotiate a deal you have no stake in (and aren’t trying to learn from) is about as interesting as watching paint dry.

And, of course, each time it gets easier. So keep at it, and that sense of calm during negotiations will come, at least to a large extent. At first, however, you will just have to accept the butterflies. I think it’s best not to try to overload yourself with various negotiating techniques and what not to do when approaching negotiating early on.

Instead, focus on the key components until you master them. And they boil down to two things:

1. Ask for what you want

2. Always be willing to walk away

Let’s examine these elements in more depth.

The Two Key Components of Negotiation

1. Ask for What You Want

Some years back, my father was locked in a negotiation to purchase a house and had reached his strike price. Problem was that he and the seller were still $10,000 apart. He was firmly at $170,000, and she was stuck at $180,000.

Earlier in the conversation, however, the seller had mentioned how her son needed a new cell phone. Well, my dad just happened to have an extra one (that he was going to give to me, by the way). All of a sudden, a solution appeared.

“How about this? I happen to have an extra cell phone — how about I throw it in if you can come down to $170,000? Does that work?”

And she said yes.

One cellphone for $10,000.

This story obviously highlights the importance of building rapport, but it also shows how critical it is to simply ask for what you want. The offer was kind of ridiculous, but what was the harm in it? After all, my dad had reached his strike price, there was no going up, so if no creative (or ridiculous) solution could be found, the deal was lost.

I’ve heard many investors say that if you’re not embarrassed about your first offer, you’re offering too much. And there’s certainly a lot of truth in that much of the time. But a better way to think of it is this: just ask for what you want. In the case of real estate, that equals what you need to make it a good deal (with room to negotiate included, of course). If you’re afraid to ask for what you want, you’ll either pay too much or offer so close to your strike price that there won’t be any room to negotiate, and you’ll probably lose a few deals you would have otherwise gotten.

I’ve noticed time and time again that most things are negotiable and just asking, “Do you have any flexibility on price?” is all it takes to get at least some sort of discount.

So ask for what you want.

2. Always Be Willing to Walk Away

Sometime back, I was traveling in South America with a good friend of mine who is fluent in Spanish. My Spanish at the time was no bueno, so I was fairly reliant on him when it came to communicating with the locals.

I had somehow forgotten my sunglasses, and so we walked to buy some at one of the various shops. I picked up the pair and asked how much. The shopkeeper told me, and then my friend said (in English) to ask how much he would come down. He offered a token discount. Then my friend told me to set the sunglasses down and begin to walk away. So I did. The guy grabbed my arm and cut his price substantially. “Ask for more,” said my friend.

At the end of the day, I bought the sunglasses for half of what they were going for.

Such bartering is par for the course in Latin America, but it highlights a major lesson: The power to walk away is crucial. In some ways, it’s defeating the fear of rejecting. Regardless, it is of the utmost importance to never be a motivated buyer (or seller for that matter).

With few exceptions (1031’s and the like), there little urgency to buy again. The next good deal will come; give it time. With selling, there are certainly more reasons to be motivated, but fight it like the plague. You should have your strike price set before the negotiation begins, and stick by that with unrelenting fervor. Any participant who is not willing to walk away is at an enormous disadvantage and will get the short end of the stick almost every time.

Conclusion

Negotiating is not an easy thing to master (and I certainly haven’t done it by any means). For those looking for more sophisticated techniques, Getting to Yes and Influence are great books to check out. But as far as the foundation goes, defeating the fear of rejection is the key first step.

Each negotiation will become easier. And when starting, all you need to remember is to ask for what you want and always be willing to walk away.

If you could give one piece of advice to the newbie investor regarding negotiation, what would it be?

Leave your best tips and tricks below!

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9 Comments

This is great advice. Thank you. I’ll keep these tips in mind when I do my first negotiation. Also, I like the comment about never being a motivated buyer (and selling). I think the trick is to put yourself in the position of not being a motivated seller.

The fear of rejection is what holds us back to make a good negotiation. Sometimes that fear get the most out of us that we end up not negotiating or not doing what should be done in the first place. It’s true that you should know what you want and be firm about it and also knowing when to walk away is also an advantage because this shows that you are not scared of being rejected by either the buyer or the seller which shows them that its either they take it or they leave it. This kind of attitude is not to show that you are arrogant but this will show people how confident you are in what you are doing and how comfortable you already are in your business. Rejection is a part of the business and it is inevitable.

Better yet contact the motivated seller 7 times before you give up on them.

Send them post cards.
Say things on the post card, and PRINT…
“I know you said no before. Would you say yes now? Please?”
“I am still interested. Would you like a written offer?”

Setting the appointment and not saying much, to get a face to face, is important.

“Framing” the face to face is also important.

I use 5 steps in framing:
1. Build rapport – talk about their job, hobbies, kids, travel locally in the area, etc.
2. Use an upfront agreement – to avoid coming back, I tell them I will either say yes I want the property or no I do not, it’s either a red light or a green light. Then I ask them if it is a green light, to sign a letter of intent during the meeting, before I leave. I say this up front.
3. I find out how they feel, why they want to sell, how open they are to sell on terms, etc.
4. If it is a cash sale, then I get the price down.
First, to get all the financial details on the sellers’ situation out and on the table. Second, to get all this information while at the same time LOWERING the sellers’ expectations as to the amount of money they are going to get and when they are going to get it.
5. Then I use a “what if step”. There’s negative phrasing in here, being a reluctant buyer, and an appeal to authority.

Deal Ex) Say the seller has 10% equity, $100K ARV, no work needed, 90% loan to be paid off, tried with an agent to sell at $110K didnt work, agent did not bring any prospective buyers over, over priced listing is the reason but I don’t say that.
“““““““““`
What if step example

“Mr. and Mrs. Jones, we been through a lot in the last 45 minutes or so talking about how to fix your house situation, so I have a possible solution but it’s only a maybe, it’s not definite unless all parties agree,
Remember we talked about this agreement where if you’re not 100% happy we’re not going to get anything done tonight, you do remember that don’t you?

(Wait for them to acknowledge you, don’t go forward until the acknowledge you)

“And remember also that I need to be 100% happy with the solution too, if I’m not completely satisfied with the solution then I’m just gonna pack up and go, it’s just not a deal for me….I like to be positive but you’ve got to be realistic too.”

(Make sure that they understand that)

“So here’s the idea, you might hate it I don’t know, it’s not perfect, what’s perfect as you get a perfect cash offer with no contingencies, and you move on with your lives. We know to sell this house you need to list the house under comps for a traditional sale, and pay the “costs to sell”, which generally are 10 to 12% of value in this market as we went through before. (we have been through that in step 3 above).

“And as you remember, because you don’t want to list it again with an agent and “pay the costs to sell”, which would net you around $87,000 if you got your price or close to it ($97,000 minus 10%) then you would have to bring money to the closing table in order to get rid of the house $87K – $90K)

Is that still your thinking or is anything changed?

(Wait and make sure you have confirmation that this is still a good solution for them)

“To get back to my solution… And again thismight not be perfect but let’s just talk about a possible solution for your house problem…what if you were to get a payment that would approximate your PITI payment, you said that was about $745, right?
” And market rent is 900, right?

” So here’s the solution, what if we get a payment that would definately cover that PITI I don’t know maybe 850 a month…

and the reason why you want to go under market rent as you get a lot of people through the house, just like when you’re by a car you “buy the payment, not with the total price”

oh that sounds like you’re losing $50 a month but the way we do it is we have a lower than market rent, but only if the tenant buyer pays before the fifth of the month, otherwise it’s hundred dollars more,

why I like this as it’s not a penalty like a late fee,

they know they can get the cheaper rent if they pay before the fifth.

….Sorry so to get back to this solution,

what if we get a PITI payment, between 850 and 950, get you some cash flow, and then would set the sales price on the “rent on arrangement” with the tenant buyer have a few percentage points above the comps, say $104,000, and the buyer would pay all the closing costs to save you money.

“Now our fee do perform this solution is paid by the buyer, which is 3% of $104,000. This is my recommendation.

And to help the buyer buy the house the 3% fee they pay us is applied toward the purchase price so the buyer will be buying it at $101,000 when they get the mortgage. This is called an option fee.

Now this whole arrangement will not work if you don’t have an open mind about when they the buyer gets the mortgage, because we can’t forecast when they will get qualified and funded to buy, but we can have an incentive for them to buy sooner than later by increasing the sales price down the road, to say 106,000 in year 2. First lease is $850, 12 months, second lease is $875, months 13-24. First option is $104,000, second option is $106,000 months 13-24. Note you start with 1st lease and 1st option and see how they do, paying the rent on time, etc.

I know this sounds complicated but let’s just keep it simple,

If you sell traditionally with an agent you pay the costs to sell you’re probably looking at around $87,000 in your pocket.

If we get involved you get more money in your pocket and the buyer pays us

If you’d like us to draft an offer that’s great…. if not we’ve got a lot of houses that don’t have alot equity to see, (being a reluctant buyer) so it’s totally up to you, no pressure, but if you want to get going we can draft a letter of intent and spell out the terms and then get this thing done in about 30 to 45 days.

(Show The letter of intent, Point with a pen, it’s blank so doesn’t really matter, I usually write on a yellow pad The basics
-Selling with an agent approximately $87,000 net to seller after all costs
-Selling on lease to own after leasing 12 to 24 months net to seller $101,000 less minor costs such as sellers concessions
“““““““““““““
That’s how I generally negotiate rent to own with the seller.

This is awesome! I still fear rejection even though I know there is really no point in worrying about it. Thanks for the reminder! I’ll try harder to remember that there is really nothing to fear in the confrontation! Happy Thanksgiving!

Let’s ask a better question. Instead of asking “Do you have any flexibility on price?”, let’s ask “How much flexibility do you have built into the price?” I have found that asking a question someone can say no to shuts the door quickly on a possible negotiation. Asking “how much” can prompt a better conversation. If the person you ask hesitates one second… rest assured, you can get a better deal!

Great story about the no’s.
I never thought of doing something like that but it makes perfect sense to thicken your skin.

I have learned a lot of negotiating and you are spot on that you only get what you ask for and you always need to be willing to walk away. Asking for what you want is just basic, if you don’t ask for it how can you possibly get it??? Walking away power though puts you in the drivers seat every time. If you can get up and walk out, and mean it, you have all the power.

1) Mother was negotiating the purchase of my first car in high school. Their first tactic is to sell on payments. So she got the price with financing. Then interjected we were paying cash could they do better. They couldn’t so we got up and walked out. Lo and behold, lower price as they chased us out to her car.

2) On a cruise buying cigars – REALLY – first price they were $40. We walked away. Price went down to $30. But we were not convinced. Next Vendor wanted $40, we offered $20, started to walk away and they decided $20 was good. Another guy on the cruise same day same beach got the same cigars for $15, he asked for less.

3) When buying a house that we saw on facebook. Wholesaler wanted $120,000 for the house, but he didn’t really have a contract signed on it yet, so he really could not sell it to us. The real seller saw wholesalers ad on facebook too and my comments and contacted me. He said Mr Wholesaler was going to pay him $90,000 in 60 days, but could we do better, after all I was interested at $120k. We looked and made a $70,000 cash offer closing in a week. Seller was willing to take $75,000 cash closing in a week. $15,000 less than Mr Wholesaler was paying. We asked for less.

Hope we talk a bit about negotiations on the 21st. See you tonight at MAREI!

Awesome blog! Definitely will check those two books out. Ironic how I came across this blog. I’m about half way through one of the books I’m reading and it speaks of Robert Cialdini. The power of reciprocity!